The purpose of this chapter is to review the economic literature on household formation. Since the seminal work of Becker (1981), economists have devoted an increasing amount of attention to issues surrounding the household. This is true in advanced economies as well as in developing countries. The volumes edited by Haddad, Hoddinott and Alderman (1997) and Quisumbing (2003), for instance, are representative of the intrahousehold literature in developing countries. Household formation in developed countries is discussed, inter alia, in Bergstrom (1997) and Grossbard-Shechtman (2003).
Our ultimate objective is not to review the entire literature on intrahousehold issues, which is now extremely voluminous. Rather we seek to organize the abundant theoretical and empirical material into a coherent whole that can serve as starting point for analyzing intrahousehold issues in developing countries. The conceptual framework proposed here is intended to be sufficiently general to encompass many specific models and ideas found in the literature, while remaining internally consistent. We use it to guide the reader through part of the literature and to provide a basis for evaluating the abundant empirical evidence.
Households are important. They fulfill many critical functions - from production and reproduction to consumption, saving, insurance, and human capital accumulation. Changes in their function helps explain changes in their size and shape over time and
across societies. At the heart of many households is a couple. The matching process by which couples are formed has deep implications regarding intergenerational mobility and long-term equity. This is particularly true in agrarian societies that still characterize much of the developing world today. Households can also dissolve, shed members, or gain new ones. Economic theory of household formation and marriage markets provide a framework for thinking about changes in household structure over time.
Each section of this chapter combines a presentation of the empirical evidence with a conceptual discussion focusing on testable predictions and testing strategies. Section 2 focuses on the reasons for household formation. Marriage markets are discussed in Section 3. Marriage dissolution is covered in Section 4 while Section 5 discusses the circumstances leading to single parent or single adult households. The last Section contains a brief discussion of other issues pertaining to household structure, such as the factors affecting the decision to leave or join an existing household.